Hong Kong Tax News Flash

Feb 2023, Issue 2

Hong Kong’s FSIE regime will be fine-tuned in response to EU’s latest guidance on foreign-sourced capital gains

On 14 February 2023, the Council of the European Union (EU) released an updated EU list regarding international tax co-operation (EU List). In light of the updated guidance on foreign-sourced income exemption (FSIE) regimes promulgated by the EU in December 2022, Hong Kong is required to fine-tune its tax legislation on the treatment of foreign-sourced capital gains by the end of 2023 for implementation with effect from 1 January 2024. Therefore, Hong Kong is kept on the EU watchlist despite the refinements made to its FSIE regime in 2022. The Hong Kong SAR government (HKSAR Government) reassures that the retention of Hong Kong on the watchlist will not result in any adverse impact on Hong Kong enterprises and has announced that a consultation exercise will be conducted to seek stakeholders’ comments on the proposed changes.

In this news flash, we summarise the key implications and our observations in relation to the updated EU List. For the background and earlier developments of Hong Kong’s FSIE regime, please refer to our previous news flashes.